Wolfowitz: Good Morning. As I said to the conference, I’m very happy to be back at this 2nd Shangri-La Conference and I’m very happy to be back in this part of the world, which in my 20 years of experience working here -- this is a part of the world where people focus on solving problems instead of creating them. It’s good to be here. I would say my basic message which I conveyed now on my behalf and on behalf of the Secretary of Defense and the President, is that -- three-fold -- the United States understands how important this region is. Secondly, that the future security and stability of this region is crucial to our own security; and third, that we remain committed to East Asian security and understand how important an American commitment is for this part of the world.

Last year, my principal message was that terrorism is everyone’s problem, and everything that has happened in the 12 months since then, I think, has brought that home. Most tragically of all is of course the attack in Bali last October, which I described as, from the terrorist’s point of view, a tactical success. But I think it was a strategic failure because it was a wake-up call for Indonesia. It has led to much greater cooperation with Indonesia in counter-terrorism and a recognition by the Indonesian people that the terrorists are targeting them and their country and their hopes for democracy, and not just targeting Americans and Australians.

We made some remarkable progress in the last twelve months in killing and capturing terrorists, and I talked about some of that, some of that achieved with the cooperation of countries in this region. But I also noted that there is a, I called it a second front in the war of terrorism. It’s what President Bush referred to in his State of Union Message last year, where he also spoke about the axis of evil. He spoke there also about the importance of building a just and peaceful world -- those were the President’s words -- beyond the war on terror, and particularly in the Muslim world.

And, as I noted today, in the aftermath of the Saddam Hussein regime, there are two immediate challenges in that regard, challenges that I think are also opportunities -- the challenge of moving forward in the Arab-Israeli peace process, and secondly, the challenge of building a new and free Iraq. This coming week, President Bush is going to the Middle East, for meetings in Sharm El Sheik with the leaders of Arab states, including Saudi Arabia, Egypt and Jordan, and then to Aqaba, where he will be attending a meeting between the Israeli prime minister and the new prime minister of the Palestinian authority.

The President hopes in this trip to consolidate regional support for the road map, including among other things, commitments by the Arab governments to halt funding of terrorists and to support the Palestinian Authority in its peace efforts; secondly, Palestinian commitments to fight terror and promote internal reform; and third, Israeli commitments to start dismantling those settlements.

In 1991, after the defeat of Saddam Hussein, and I think not by accident, we made some of the most important steps forward in the Arab-Israeli peace process that has ever been achieved since the Madrid conference and subsequently, in the Oslo accords. I think that the defeat of Saddam Hussein this year has greatly improved the regional environment for peace making. It’s not only removed the neighborhood bully who was a source of threat and danger to everyone, but the indirect effects, I think, may be even more important in giving friendly countries like Jordan and Saudi Arabia more room to maneuver, in giving Israel more room to take risk for peace, and most of all in giving United States enhanced credibility, which I think will be important, not only with Israel and with the Palestinians, but with Arab countries like Egypt and Jordan and Saudi Arabia.

The other challenge is in Iraq, where we have succeeded in removing one of the worst regimes in the world. The mass graves that have been uncovered on a daily basis in Iraq, I think, speak volumes to the horror of that dictator who I think was responsible for the death of more Muslims than any other leader in the world. But we face challenges now, particularly challenges in the security area. And as I tried to explain this morning, those challenges are not conventional peacekeeping, if one can use this word, of the kind experienced in Bosnia and Kosovo, for example. It is more like a low-level urban guerrilla war. As a commander of the coalition ground forces, Lt. Gen. David McKiernan said recently, I quote “The war has not ended. Decisive combat operations against military formations have ended, but the contacts we are having right now are in the combat zone, and it is war. And dealing with that will require a considerable effort, but there is no question at the end of the day who is going to win.”

I also noted the passage last week of the Security Council resolution that lifted sanctions from the Iraqi people and opened the way for international cooperation to help build a new (Inaudible.) for Iraq and expressed our hopes that the international community will rise to that challenge and work with us.

And finally, I addressed a number of issues regarding specifically the East Asia region. In addition to counter-terrorism here, but importantly, I think on people’s minds are all these reports about the rethinking that’s going on about our worldwide footprint. We are in fact rethinking it, not just in East Asia but around the world, including in the United States. But, while many studies have been done and many ideas have been presented, no decision has been made yet. Before making decisions, we need to consult both with our Congress and with our affected allies. I think there are new opportunities and new needs.

I think an essential point though is that we have managed to build upon a close relationship we have, not only with our allies in this part of the world, but with a number of other friendly countries to make the Pacific a truly Pacific region for one of the first times in its history. And we hope to continue working together with the countries in this region to keep it that way. I think this conference is an important contribution to that effort and I applaud IISS for organizing it, and thank our Singaporean hosts for hosting it, and I try to take some questions --

Q: Are you urging Asian nations to crack down on North Korea, on remittances and drug smuggling and export sales?

Wolfowitz: We are working with Japan and Korea, our Northeast Asia allies, and with China and Russia, the other two key countries in Northeast Asia, to develop a common approach to North Korea that can persuade that country that the course it is going down it is really a blind alley, that investing in nuclear weapons the way they are -- devoting by some estimates more than half of their pathetic GNP to building military forces that they can’t afford and don’t need -- is not the way to help them survive. The way to survive, in fact I think, is to follow something like the Chinese model of 20 years ago. And there are a variety of ways in which we can try to persuade the North Koreans if that is the right course to go on.

But first of all, we got to have a common agreement among the major powers of the region that that is in fact where we are heading, and I think, we made some progress in that regard.

Q: But what are the whole course of steps in taking President over the negotiation now?

Wolfowitz: I think any successful diplomacy is going to have some combination of both demonstrating to the North Koreans that the course they are on is a blind alley but also demonstrating that there are real gains to be made if they behave in a different way, in a fundamentally different way. I think the gains for the North Korean are potentially enormous.